Joselyn Duff | For The Post
The current dangerous, vulnerable mega-bank financial landscape of the United States is in no way an accident. It is rather the careful construction of government steps at deregulation, which started with the neutralization of one of the most efficient actions taken by President Franklin D. Roosevelt’s New Deal, the Glass-Steagall Act.
The Glass-Steagall Act was part of the Banking Act of 1933, signed into law by Roosevelt. The primary goal was to create a separation between commercial and investment banks. This provided protection to Americans who committed their savings to commercial banks. It also created the Federal Deposit Insurance Corporation, which now insures up to 250,000 per depositor.
Commercial banks handle everyday financial interactions through demand deposit accounts and short-term commercial loans. On the other hand, investment banks specialize in the sale of bonds and stocks.
The act prohibited bankers from using citizens' deposit money to pursue high-risk investments to “provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes,” the Banking Act of 1933 said.
Before Glass-Steagall, during the Great Depression, commercial banks used customer deposits to fund stock market speculation and private securities underwriting.
The law ensured that if Wall Street happened to burn to the ground, depositors in commercial banks would be safe.
The act protected citizens for more than 60 years and allowed decades of economic growth.
This was until 1999, when the act was partially repealed under Bill Clinton with the Gramm-Leach-Bliley Act. This removed the separation between commercial and investment banks, while keeping the FDIC in place.
This caused widespread deregulation across banks in America and giant mergers, putting taxpayers at risk and clearly displaying the government's priorities for business rather than people.
A critic of the partial repeal, Nobel Prize winner Joseph Stiglitz, said when bringing “investment and commercial banks together, the investment bank culture came out on top.”
This culture shift put high-risk, short-term gambles over stable safeguarding that protected citizens.
Former Maryland Gov. Martin O’Malley argued before the act was repealed that the six biggest banks in the U.S. controlled 15% of GDP, they now control 65%.
The expansion of control held by these banks is a direct symptom of something Glass-Steagall protected: mergers.
In an address to the American Bar Association, Robert Kramer, a litigation chief, listed multiple “mega-mergers” in the U.S banking industry, the most notable being between Nations Bank and Bank of America.
Kramer describes this merger as valued around $60 billion. The merger formed the largest bank in the U.S. at the time. It held 80% of all bank deposits nationwide.
Mergers pose a risk to the U.S. economy. The bigger a bank becomes, the more vulnerable the U.S. economy becomes if it collapses.
According to a study done by Jeffery Jou, Teng Wang and Jeffery Zhang in 2024 published with the FDIC titled “Are Bank Mergers Bad for Financial Stability?”, on average, U.S. banks lose resilience after merging. This means they are more likely to fail during a crisis.
In the study, they examined the effect of mergers in relation to financial resilience and found that merged banks exhibit higher projected loan losses during adverse economic conditions.
The long term solution to this problem to protect US taxpayers from the threat of mega-mergers and mega banks is to reevaluate the deregulation that came from the partial repeal of the Glass-Steagall Act and put more pressure to diversify banking.
Joselyn Duff is a freshman studying journalism at Ohio University. Please note the opinions expressed in this column do not represent those of The Post. Want to talk to Joselyn Duff about their column? Email them at jd637225@ohio.edu or reach them at @joselynduff48.
